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TMI Blog2015 (7) TMI 1021X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of ₹ 2.00 crores as the sale consideration towards the shares transferred by the assessees. Since we have held that the surrounding circumstances show that the MOU / letter was not given effect to and the amount of ₹ 2.00 crores does not represent the sale value of shares alone, we do not find it necessary to deal with the question of actual receipt/payment or accrual. We are unable to agree with the conclusions reached by Learned CIT(A). Accordingly, we set aside the orders passed by Learned CIT(A) in the hands of both the assessees herein and direct the Assessing Officer to delete the impugned addition contested by both the assessees. - Decided in favour of assessee. - I.T.A. No51/Viz/2012,I.T.A. No52/Viz/2012 - - - Dated:- 28-7-2015 - Shri D.Manmohan and Shri B.R.Baskaran, JJ. For the Petitioner : Sri G.V.N. Hari, Adv For the Respondent : Sri G.Gurusamy, CIT-DR ORDER Per B.R.Baskaran, AM : Both the assessees have filed separate appeals against a common order dated 30.12.2011 passed by the ld CIT(A), Visakhapatnam and they relate to assessment year 2007- 08. 2. Since the issues contested in these appeals are identical in nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rabhu Kishore or his nominees 6. The above said letter was signed by Sri V.Prabhu Kishore. In the statement taken from the assessee on 11.3.2008 i.e. on the date of search, the assessee was confronted with the letter cited above. The relevant questions and replies are extracted in the assessment order are given below:- Q.20 . Please refer to the communication from Mr Prabhu Kishore, MD M/s. Varun Motors Pvt Ltd., regarding share transfer. Please explain. Ans. I have sold my shares to Mr V. Prabhu Kishore, MD M/s. Varun Motors Pvt Ltd., for ₹ 10 lakhs received by Cheque No.103893 dated 9.6.2006 of M/s. Varun Motors Pvt Ltd., towards sale consideration of my 40000 shares which is deposited again in M/s. Varun Motors Pvt Ltd., on 9.6.2006 as a loan. Q. 21- What is the reference of two crores mentioned by Mr V Prabhu Kishore in letter dated 17.4.2008. Ans:- It is a commitment given by Mr V. Prabhu Kishore though against 75% shareholding transfer as per the letter AJRA/A/1/25 . But the same is promised to be given at the time of my daughter s marriage. 7. Subsequently, another statement was taken from the assessee on 15.4.2008, wherein, the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the ratio of 40,000 : 31,000. Aggrieved by the order passed by the ld CIT(A), both the assessees have filed appeals before us. 11. The Learned A.R submitted that the dispute has arisen on the basis of the letter written by Shri V. Prabhu Kishore, the Managing director of M/s Varun Motors (P) Ltd to Shri Janakiram. He submitted that the letter was given in connection with an agreement reached between the parties to dispose of controlling interest, but finally it was not given effect to. He submitted that the Learned CIT(A) has, however, proceeded to adjudicate various issues with the presumption that the contents of the letter have been acted upon by both the parties and hence he has tried to validate the contents of the letter by considering various probabilities. He submitted that the assessee Shri Janakiram was confronted with the letter during the course of assessment proceeding and also during the course of statement taken from him subsequently within a period of less than a month. The assessee Shri Janakiram had clearly stated in his statements that the impugned amount of ₹ 2.00 crores was not related to the value of shares and it was agreed to be given by Shri V. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares and her assessment was reopened on the basis of the letter cited above. Though the assessing officer has taken a statement from Smt. A Rajyalakshmi also, yet he chose not to put any question to her about the contents of the letter, referred above. Further, Smt. A. Rajyalakshmi held 35,000 shares, but Shri V. Prabhu Kishore has written letter only to Shri Janakiram, meaning thereby there was no agreement between the three parties involved in the transaction. He further submitted that the revenue did not examine Shri V. Prabhu Kishore, though he also filed a letter before the Assessing Officer, wherein he has clearly stated that the amount of ₹ 2.00 crores was intended to be given to meet the expenses of marriage of daughter of Shri Janakiram. He has further clarified that the gratuitous payment of ₹ 50,000/- mentioned in the letter was not accepted by Shri Janakiram. It was further stated that since Shri Janakiram was holding the post of director and since his services were required by the company, the Board of directors agreed to use his services by paying monthly commission of ₹ 50,000/-. Accordingly he submitted that both the assessee and Shri Prabhu Kishor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther submitted that the conducting of marriage of daughter is an obligation of the parents. He submitted that the letter has stated that the impugned amount of ₹ 2.00 crores was to be paid at the time of marriage of daughter of Shri Janakiram. Since the happening of marriage is a contingent event, the contract entered upon happening of a contingent event cannot be enforced. In this regard, he placed reliance on the decision rendered by the Delhi bench of Tribunal in the case of Smt. Chander Bala Modi Vs. GTO (1988)(31 TTJ (Del) 314), which was rendered in the context of Gift tax Act. 17. Accordingly, the Ld A.R submitted that the Ld CIT(A) was not justified in confirming the assessments in the hands of both the assessees on the basis of a letter, which was not acted upon by the parties. 18. On the contrary, the Ld D.R submitted that the letter written by Shri V. Prabu Kishore clearly states that the amount of ₹ 2.00 crores is committed towards the value of 7.5% share holding held by the assessees in VMPL. He submitted that the surrounding circumstances would show that the said letter was actually acted upon by the assessees and Shri V. Prabu Kishore. He submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her submitted that Shri Janakiram has initially accepted that the said consideration was towards the transfer of shares and in the subsequent statement, he has changed his version and stated that the same represented gift agreed to be given by Shri V. Prabu Kishore. The Learned D.R the second statement was mere an afterthought. He submitted that there was no necessity to state about the gift in the letter written for a business transaction. He further submitted that there was no necessity to write a separate letter to Smt. A Rajyalakshmi, since she was the spouse of Shri Janakiram and hence his decision should be acceptable to Smt. A Rajyalakshmi. 20. The Ld D.R further submitted that the ld CIT(A) has addressed all the contentions of the assessee in a detailed manner and accordingly prayed that the order of Ld CIT(A) should be upheld. 21. We have heard rival contentions and perused the record. The whole dispute revolves around the letter written by Sri V Prabhu Kishore to the assessee Sri A Janakiram, which was found from the residential premises of Sri A Janakiram. We have earlier noticed that Sri A Janakiram is a Director of M/s. Varun Motors Pvt Ltd., and he, along with h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes the said view. The main contention of the assessee is that the terms of letter was not given effect to, where as the tax authorities have tried to establish on the basis of surrounding circumstances that the terms of the letter was given effect to. 24. We shall now examine as to whether the facts surrounding the issue support the case of assessee or revenue. We have earlier noticed that the assessing officer, having referred to MOU also, has proceeded to treat the entire amount of ₹ 2.00 crores as representing the sale value of 7.5% of share holding. However, as contended by the assessee, the tax authorities have not brought any material on record to corroborate the amount of ₹ 2.00 crores as representing the value of 7.5% of the share holding. In this regard, it is pertinent to note that the valuation of shares is normally done in a scientific manner considering various factors like the book value of shares, past financial performance, future earning potentials etc. In the case of listed companies, the market value of shares could be easily ascertained through price at which the shares are traded in the stock exchange. In spite of availability of market price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss it is combined with some other rights of intangible nature. We have also noticed that the MOU cited above, in fact, creates a non-compete right in favour of Sri V Prabhu Kishore. In the letter written by Shri Prabu Kishore, he has used the expression consolidated sum and the word consolidate usually means to unite into one or to merge . Accordingly, it is possible to infer that the amount of ₹ 2.00 crores represented a consolidated amount towards the value of shares as well as for acceding non-compete rights in favour of Shri Prabu Kishore, in which case the entire amount of ₹ 2.00 crores could not be assigned towards the value of shares, if one agrees with the view of the tax authorities that the letter/MOU was given effect to. 26. We notice that the tax authorities have considered the letter written by V. Prabu Kishore in isolation without taking the MOU also into account. We notice that the revenue has not brought any material on record to show that the MOU was given effect to by the parties thereto. According to the MOU, Shri A. Janakiram shall not start independent business and he can do the business jointly with Prabu Kishore. According to the ld A.R. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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